Power of Headlines

Headlines exist for one reason – to get you to read, click or tune in. The real purpose of headlines is not to inform, it is to get you hooked.

Our brains love headlines! We don’t have a lot of time, and we are constantly being persuaded to look this way or click over here. The brain often lends attention to those things we can learn in two seconds without using any brainpower. Headlines provide that material.

If a headline seems plausible, the natural reaction is to believe it. The financial media relies heavily on headlines to steal our attention from more important matters. And because we prefer to not think critically about things, the financial media can greatly influence our opinions and ultimately our investment actions.

A great example occurred last month in Barron’s, dated August 4, 2017.  The headline read, “Will Stocks Take a Big Hit in August?” The sub-headline read, “Since 1950, August has been the worst month for the Dow Jones Industrial Average.” A very effective headline that may have given us some concern. Add that to all the talk that “we’re due” for a pullback, and it may have influenced investors to head for the sidelines.

So, how did the Dow end the month? It ended up flat. Not too shabby given the news events in August: significant political infighting, North Korea concerns and the devastating flooding in Houston. Certainly not a “big hit” as the headline was implying.

There are lots of distractions out there, headlines being some of the most potent. If you come across a headline that bothers you or is influencing your investment opinions, let’s talk about it.  One thing I love about my job is helping investors decipher the noise that aims to distract from those things that really matter. 

 

The Dow Jones Industrial Average Index is comprised of U.S.-listed stocks of companies that produce other (non-transportation and non-utility) goods and services. The Dow Jones industrial averages are maintained by editors of The Wall Street Journal. While the stock selection process is somewhat subjective, a stock typically is added only if the company has an excellent reputation, demonstrates sustained growth, is of interest to a large number of investors, and accurately represents the market sectors covered by the average. The Dow Jones averages are unique in that they are price weighted; therefore, their component weightings are affected only by changes in the stocks’ prices. It is not possible to invest directly in an index.